>BIOCON LIMITED: Atorvastatin bulk supply to one partner is expected to begin in the US

■ Biocon reported net profit of INR848m for 3QFY12 (-14% yoy excluding AxiCorp), lower than our estimate of INR950m. Sales came in at INR5.2bn (+1.5% yoy), lower than HSBCe of INR5.5bn owing to lower biopharma sales (INR3.7m for Q3FY12 versus our estimate of INR4.1bn) and licensing income. Licensing income was INR292m in this quarter, of which only INR30m flows into net profit. EBITDA margins at 24.9% were below estimate; they were mainly hit by lower sales and higher other expenses, which included higher promotional expenses for insulin pens. The tax rate was low at c12%. Branded India business and contract research were the only positives in 3QFY12: Biopharma sales excluding branded formulations declined 5% qoq (-13% yoy) because of the absorption of capacities by ongoing research development programmes for biologics. India branded business was up c50% yoy. Contract research services were up c43% yoy with a 10% benefit from INR depreciation. The company plans a Syngene listing over the next 12-18 months.


■ Atorvastatin bulk supply to one partner is expected to begin in the US post expiry of exclusivity in May 2012. Fidaxomicin build-up is on track and Optimer’s EU launch expands the opportunity.


■ Maintain N with a revised TP of INR305 (from INR310): Despite a stock correction of
c23% over the past three months, we remain unclear about potential near-term catalysts in
the atorvastatin and fidaxomicin sales ramp-up. While the company maintains that
simvastatin sales hold ground, we believe the stock price reflects concerns of a possible
decline in simvastatin. While Biocon may be successful in capturing atorvastatin sales, we
are cautious on pricing amidst high competition. As a result, we cut our FY13 and FY14
earning estimates by 3.5% and 1.1%, respectively. We continue to value the stock at 15x
September 2013e EPS of 20.3x to derive our new TP of INR305 (previously INR310).
Key downside risks are a decline in core biopharma business (statins) and failure of any
ongoing R&D programmes. On the other hand, any possible tie-ups in oral insulin/anti-
CD6 could be a potential upside trigger.


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